On 2 September 2014, the South African Revenue Service (SARS) first issued Binding General Ruling 24 (Ruling). The Ruling dealt with some of the requirements that need to be met under s18A of the Income Tax Act, No 58 of 1962 (Act), in order to qualify for a deduction in terms of s37C(3) of the Act. However, due to the uncertainty that persisted regarding the application of these provisions, SARS reissued the Ruling on 15 February 2016.
Section 37C of the Act incentivises the conservation of ecologically-viable areas by enabling taxpayers to claim various tax deductions for these endeavours. Section 37C(3) specifically provides for the tax deductibility of expenditure actually incurred by a taxpayer to conserve or maintain land owned by the taxpayer, if the conservation or maintenance is carried out in terms of a declaration that has a duration of at least 30 years under s20, s23 or s28 of the National Environmental Management: Protected Areas Act, No 57 of 2003. These sections relate to the declaration of an area as a national park, nature reserve or protected environment, subsequent to a notice being issued by the relevant Minister.
Section 37C(3) of the Act deems the deductible amounts to be a donation paid or transferred to the government for which a receipt has been issued under s18A(2). However, section 18A(2) expressly prohibits a deduction under s18A(1), unless the claim is supported by the issue of a receipt. This circular reasoning created uncertainty as to whether the Act requires a receipt as envisaged in s18A(2) to be furnished to SARS in order to qualify for the deduction in s37C(3).
In order to qualify for these deductions, the requirements of s18A of the Act, which deals with the deductibility of donations, must be met. Section 18A(1)(c) provides for the tax deductibility of donations made to any government department of the Republic in the national, provincial or local sphere, carrying on an approved public benefit activity as set out in Part II of the Ninth Schedule. A taxpayer making a bona fide donation in cash or of property to any entity listed under s18A(1) is entitled to a deduction from taxable income if the donation is supported by the necessary s18A receipt, which must include the details as set out in s18A(2).
Based on the above, SARS ruled that an amount claimed under s18A and that is for the purposes of s37C(3) deemed to be a donation, will qualify for a deduction notwithstanding the fact that a receipt as prescribed in s18A(2) has not been issued. The Ruling applies from 15 February 2016 and is valid until it is withdrawn, amended or if the Act is amended.
Although it is not clear what percentage of taxpayers have made use of this deduction, it is still significant that SARS is willing to make a concession by relaxing the compliance burden on the taxpayer. This is especially significant in light of the provisions of the Tax Administration Act, No 28 of 2011 which will be amended to allow SARS to request biometric information from taxpayers. The concession made by SARS’s interpretation of s18A(2) and s37C(3) is a welcome one.